Thomas v. Johnston

• Decision Date: 21 January 1983
• Docket Number: Civ. A. No. A-82-CA-251.
• Citation: 557 F. Supp. 879
• Parties: Royal THOMAS, et al., Plaintiffs, v. Marlin JOHNSTON, et al., Defendants.
• Court: U.S. District Court — Western District of Texas

557 F. Supp. 879

Royal THOMAS, et al., Plaintiffs, v. Marlin JOHNSTON, et al., Defendants.

Civ. A. No. A-82-CA-251.

United States District Court, W.D. Texas, Austin Division.

January 21, 1983.

COPYRIGHT MATERIAL OMITTED

Diane Shisk, Renea Hicks, Advocacy Inc., Austin, Tex., for plaintiffs.

Martha Allen, Dept. of Mental Health and Mental Retardation, Atty. Gen., State of Tex., Ed Davis, Dept. of Human Resources, Austin, Tex., for defendants.

MEMORANDUM OPINION AND ORDER

NOWLIN, District Judge.

In this cause, named Plaintiffs, mentally retarded and physically disabled children who are Medicaid recipients eligible under Texas law for placement in intermediate care facilities for the mentally retarded (ICF-MRs), challenge the reimbursement rate scheme for ICF-MRs in the State of Texas administered by the Defendants under the federally funded Medicaid program. Before the Court at this time is Plaintiffs' motion for preliminary injunction. Having carefully considered the arguments supporting Plaintiffs' motion, as well as Defendants' response thereto, and having held an evidentiary hearing with respect to the motion on June 22 and 23, 1982, the Court is of the opinion, for the reasons set out below, that Plaintiffs should be granted preliminary injunctive relief. Because of the complexity of the issues raised by Plaintiffs, and because the Court's basis for entering this preliminary injunction is considerably narrower than the broad-based arguments presented to the Court in support of the motion, a somewhat detailed explanation is required of the issues raised by the parties and the Court's analysis and resolution of some of those issues.

I. INTRODUCTION

A. The Parties

Each of the named Plaintiffs is a Medicaid recipient eligible under Texas law for ICF-MR placement in a Level V facility. Each is mentally retarded, physically disabled, and has behavioral problems. Each has been professionally evaluated and has an individual habilitation plan developed in conformity with federal regulations.

Named Plaintiffs are six of fourteen ICF-MR residents of Ada Wilson Hospital who were notified in January of 1982 by hospital authorities that they would be discharged from the hospital at the end of May of 1982 due to staff cutbacks resulting from a reduction in Ada Wilson's rate of reimbursement for their care. This reduction in reimbursement resulted from a change in the Texas ICF-MR reimbursement rate structure that became effective December 1, 1981. Named Plaintiffs have resided in Ada Wilson Hospital for periods of time ranging from one and a half to four years.

Ada Wilson Hospital's ICF-MR is a licensed Level V, non-profit children's facility, admitting ages 6 to 17. The hospital opened its ICF-MR facility in November of 1977, and is one of only two community based ICF-MR Level V facilities serving children in Texas. Ada Wilson Hospital has seventy-two ICF-MR residents, sixty-five of whom are multiply handicapped. These children require a wide range of services in differing amounts, depending upon their individual habilitation plans.

Title XIX of the Social Security Act, 42 U.S.C. § 1396 et seq., commonly known as the Medicaid Act, establishes a cooperative relationship between the federal government and state governments designed to share the cost of medical services to needy individuals with limited incomes and resources. If a state elects to participate in the Medicaid program, it must designate "a single state agency to administer or to supervise the administration of the state Medicaid plan." 42 U.S.C. § 1396a(a)(5). The designated state agency then draws up a medical assistance plan consistent with the guidelines contained in the Medicaid Act and the regulations promulgated thereunder and submits it to the Health Care Financing Administration (HCFA), an agency of the Department of Health and Human Services (HHS) for approval. When HCFA approves the plan, the state becomes eligible for federal matching funds for reimbursement of the cost of specific types of medical assistance, 42 U.S.C. § 1396b(a).

Intermediate Care Facilities for the Mentally Retarded (ICF-MRs) are residential facilities providing twenty-four hour care, habilitative services and supervision to persons who are mentally retarded or have related conditions and require an institutional-type setting to benefit from active treatment.¹See 42 U.S.C. §§ 1396a(c), (d); 42 C.F.R. § 435.1009; 42 C.F.R. § 442.400 et seq. The ICF-MR program is one that a state may elect to provide as an optional medical service to its Medicaid-eligible population and receive federal financial assistance under the terms of the Medicaid Act. 42 U.S.C. § 1396d(a)(15).

Texas elected to participate in the Medicaid ICF-MR program beginning in 1976. Defendant Texas Department of Human Resources (TDHR) is the single state agency designated pursuant to 42 U.S.C. § 1396a(a)(5) to administer the Medicaid program in the state of Texas. TDHR contracts with Ada Wilson Hospital and other ICF-MRs to provide covered services to Medicaid recipients such as Plaintiffs. TDHR has overall responsibility for administering the Medicaid program in Texas, including the determination of rates at which ICF-MRs will be reimbursed for providing such services. Defendant Marlin W. Johnston is Commissioner of TDHR and is sued in his official capacity. As Commissioner he is charged with overall responsibility for the administration of TDHR, including the state Medicaid program.

Defendant Texas Department of Mental Health and Mental Retardation (TDMHMR) is the agency of the State of Texas charged with administering state facilities for the mentally retarded, and shares certain responsibilities with TDHR and the Texas Department of Health for the State ICF-MR program. Defendant Gary Miller is the Commissioner of TDMHMR and is sued in his official capacity. As Commissioner he is the chief administrative officer of TDMHMR and has general responsibility for administration of the Department and its institutions and programs.

B. The Medicaid Act and the Texas Scheme for ICF-MR Reimbursement

Initially, the Medicaid Act did not include any specific requirements concerning the methods of reimbursement to be used to pay for ICF-MR services. Individual states were allowed to develop their own payment methods, subject only to the general requirement of 42 U.S.C. § 1396a(a)(30) that payments not exceed reasonable charges consistent with efficiency, economy, and quality of care. Thus, states developed a variety of payment methods ranging from the retrospective, reasonable cost reimbursement system used by Medicare, see 42 C.F.R. Part 405, Subpart D, to prospective rates based upon factors not necessarily directly related to actual facility costs, including state budgetary considerations.²

In 1972, Congress added a new section to the Social Security Act, 42 U.S.C. § 1396a(a)(13)(E), effective July 1, 1976. This section required that each state Medicaid plan provide for reimbursement of intermediate care facility services

on a reasonable cost related basis, as determined in accordance with methods and standards which shall be developed by the State on the basis of cost-finding methods approved and verified by the Secretary.

Social Security Amendments of 1972, Pub.L. No. 92-603, § 249 (amended 1980) (emphasis added).

The Senate Finance Committee report accompanying this amendment stated that under the previous statutory standard, some skilled nursing facilities and intermediate care facilities were being overpaid while others were being paid too little to support the quality of care needed by Medicaid patients. The Committee noted, on the other hand, that the reasonable cost reimbursement method used by Medicare and, in particular, the detailed cost-finding requirements that are an integral part of that method, could cause difficulty for some long-term care facilities. The amendment required that payments to long-term care facilities be related to the reasonable costs the facilities incur, thus permitting states considerable flexibility, within limits established by HCFA regulations, to develop their own methods and standards for paying these costs.

The Omnibus Reconciliation Act of 1980 (Pub.L. 96-499), enacted on December 5, 1980 and effective October 1, 1980, made a significant change in the provisions of the Medicaid law that govern payments for long-term care facilities, including ICF-MRs. Section 962 of Pub.L. 96-499 amended section 1902(a)(13)(E) of the Medicaid Act to remove the requirement that states pay for these services on a reasonable cost-related basis, and substituted for it a new statutory standard requiring that intermediate care facilities be paid through the use of rates, determined in accordance with methods and standards developed by the state,

which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities in order to provide care and services in conformity with applicable State and Federal laws, regulations and quality and safety standards....

42 U.S.C. § 1396a(a)(13)(A) (Supp.1982) (emphasis added).

The legislative history of this 1980 amendment sheds light upon the reasons for its adoption and Congress' intent concerning how the new statutory standard should be carried out. The Senate Report accompanying the amendment stated:

States have argued that the complex and long-delayed Federal regulations implementing the reasonable cost-related basis statutory standard have unduly restrained their administrative and fiscal discretion and that the federal approval process has forced States to rely heavily on medicare principles of reimbursement. Neither of these consequences was intended when that statutory standard was enacted.

The committee continues to believe that states should have flexibility in developing methods of payment for their medicaid

...